In case you haven’t heard, the recent economic bailout bill included a provision for increasing FDIC insurance limits to $250,000 per depositor per insured bank. This move is intended to shore up confidence in struggling banks and improve liquidity in banks across the country.

What increased FDIC coverage means for you

The new limits mean that a married couple such as my wife and I could conceivably keep up to $1M at a single bank — individual accounts for each of us ($250k/each) plus a joint account ($500k). Not that it matters too much for us, but the increased coverage is currently slated to end in December 2009, though it’s conceivable that additional legislation could extend this deadline, or make the change permanent.

Who’s paying for the increased FDIC coverage?

Interestingly, FDIC premiums (paid by banks) are increasing, with the average premium going up to roughly double the current rate (from 6.3 to 13.5 cents per $100). This change has actually been in the works since July, and will apply only to the first $100k of deposits per depositor, as the FDIC isn’t being allowed to increase their rates to offset the additional coverage. Rather, they’ll have to borrow from the Treasury to cover losses due to the higher limits.

The future of FDIC insurance

On a related note, Congress actually approved new limits that would peg FDIC coverage to inflation back in 2005. However, that measure wasn’t scheduled to go into effect until 2011. Stay tuned — I’m sure this isn’t the last we’ll be hearing more about FDIC coverage in the coming months…

16 Responses to “FDIC Insurance Limits Increased to $250k”

“The FDIC isnâ€™t being allowed to increase their rates to offset the additional coverage. Rather, theyâ€™ll have to borrow from the Treasury to cover losses due to the higher limits.”

In other words, it’s not based on any real new value, savings, premiums or reinsurance. It’s just the pre-socialization of future financial calamities. If this has any effect at all it should be to just nick the dollar a bit further. That’s what is really backing this – the future soundness of our currency.

Does anyone really think this is *that* big of a deal? I’m always reading about how Americans don’t have any savings, so how could this be so useful? Who really has more than $400k in cash sitting around (current possible FDIC coverage) thinking, “great now I can deposit the rest of my cash in the bank and not worry that I can lose it”. Am I off the wall for thinking this? This issue has been “bothering” me lately, so thanks for posting about it.

You and your wife can keep more than $1 million insured at one bank. If you each had another account that is payable on death to the other, thats another $500,000. More accounts that are payable on death to your kids further increases coverage per beneficiary.

I agree that the increase is more to address confidence than convenience. In the age of electronic funds transfers between banks. Keeping hundreds of thousands or even millions insured under the lower limits was not overly complicated.

I know quite a few older people who have several hundred thousand in the bank, and I don’t consider them rich, just retired and conservative. I also have a friend my age, mid-30s, who just recently did some juggling of cash to get under the current limits – so they have several hundred thousand in cash, too. It may affect a minority of Americans, but it might be more than you think, many older Americans keep lots of cash in bank accounts and CDs – probably more than they should, but that’s a different discussion altogether.

I’m pretty sure that this won’t have much of a cost. I’m assuming something around 99% of accounts have less than $100k in them. So increasing the limit will only make a marginal difference in the amounts FDIC insures.

I tried to find data on the % of bank accounts that were over the $100k insured limit but I couldn’t find anything comprehensive. You can look at examples of recently failed banks to get an idea though.

So theres 2 example banks with uninsured balances accounting for 1-2% of the whole. I bet that kind of number would hold across the industry given the number of people that would actually have >$100k in a bank.

Increasing what you cover by 1-2% should increase the cost proportionally I’d assume.

This limit is a psychological effect only. Investors who are smart that keep their portion of cash in the bank usually spread it to other banks, benefiting from multiple accounts insured by the FDIC. -Lee

the bill passed to-day obama signed it , retroactive back to 2008, i got hit for over $20,000, its my money and i want it back now , its my money and i want it back now !!!!!!!!!!!!!!!!!!!!! of course they will give no interest .

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